Your Inflation Rate Depends On Where You Live

Inflation continues to rage in America and just hit 8.6% for the 12 month period ending in May 2022.  Regular Accidental FIRE readers know that I’m a geography geek and whenever possible try to highlight aspects of personal finance from a geographic perspective.  And I’m here at your service to do that again. 

Geography affects virtually everything, so it’s no surprise that it affects inflation too.  Where is inflation worse and where is it better?  Let’s take a look.

 

Mapping Inflation

The fine folks at the Economic Innovation Group used U.S. Government data from the Bureau of Labor Statistics (BLS) to look at geographic patterns of inflation.  Their overall broad takeaway:

The cost of goods and services is increasing at different rates depending on which part of the country someone calls home. Generally, prices are rising fastest in areas that were relatively cheaper to live and work in prior to the pandemic, and rising more slowly in the country’s more expensive corners.

In more detail:

The latest regional Consumer Price Index (CPI) figures from the Bureau of Labor Statistics (BLS) show that prices rose the fastest from November 2020 to November 2021 in the East South Central region covering Alabama, Kentucky, Mississippi, and Tennessee (the BLS does not publish inflation figures for individual states). This region registered a 7.8 percent annual inflation rate. At the other end of the spectrum, annual inflation ran comparatively lower in the Middle Atlantic (5.9 percent) and Pacific and New England regions (6.1 percent).

As they mentioned the BLS unfortunately does not publish individual states but if you zoom to the map in the link above you will see states grouped into regions as described above.  If you hover your mouse over a state you will see the inflation rate from November 2020 to November 2021 for the region that state resides in.

 

It’s clear to see that middle America and the Southeast have been hit harder than the generally wealthier areas of New England and the West Coast.  Alaska and Hawaii which are both generally more expensive states have also been hit less hard.

The bottom line is that there’s a lot of price parity in America.  It’s obvious that there are higher cost of living states and regions and lower ones.  So even though inflation has been worse in generally lower COL areas, how bad is the price parity?  Let’s take a look.

 

Regional Price Parity

The next map in the Economic Innovation Group post uses Regional Price Parity (RPP) data for 2020 from another Federal Government agency, the Bureau of Economic Analysis.  So the data are a bit old but give a good indication of the parity between states before inflation really started skyrocketing.

 

When you hover your mouse over a state on the map on their site (not the one above) a popup will show the price parity as compared to the national price level. 

So basically the number is a percentage as compared to a national average price.  Mississippi has the cheapest prices at 87.8% of the national average, and Hawaii is the most expensive at 112% of the national average. 

The map shows what you’d generally expect with some standouts such as Colorado being more expensive than the national average and some states in New England such as Pennsylvania, Vermont, and Maine being cheaper.

 

The Inflation Rate Is Complex

The Economic Innovation Group post then goes on to show the changes in price parity for states dating back to 2014.  And they have some interesting analysis to explain the geographic inflation disparities:

What explains these regional differences, and what might they mean? Many of today’s states with high-inflation experienced strong economic rebounds after the initial pandemic recession — likely due to a combination of industry mix and policy effects, like abbreviated shutdowns — and now boast very tight labor markets. Many are also home to industries disproportionately affected by price increases, such as manufacturing. Some are rural, where gasoline and other hard commodities feature strongly in the local household and business spending baskets.

They go on further but you get the picture.  In a nutshell, it’s immensely complex and there is no one thing to point to. 

I did a post about how macroeconomics is a failed discipline because those who study it also try to predict trends and changes.  The economic system is far too complex and there are too many fuzzy variables that can be manipulated to pretend to completely understand it. 

Prices however are easy to measure, so the maps above should be considered to be generally accurate.  But trying to predict the reasons behind variations in inflation based on geography is like macroeconomics in many ways.  Some of the reasons for these variations could be based on state politics and policy, but many are likely to be intricately woven into the myriad of complexities of the economy as a whole. 

They end with this:

The pandemic in general has placed a greater proportion of big city, coastal economies in a state of suspended animation, while more goods-producing, interior economies were quick to shake off the pandemic and resume their growth trajectories. Whether these differential rates of growth and price increases lead to a more lasting convergence across the country’s economic map remains to be seen. But coming hot on the heels of a decade that saw expensive coastal areas pull away from the Heartland, it’s a reversal worth noting–and watching.

For geography dorks like me it is worth noting and watching, haha.  And I find geographic analysis like this endlessly fascinating.  So sorry to geek-out so much on their analysis and thanks for letting me indulge!

 

Geoarbitrage

So there you have it financial warriors, a great resource that shows variations in the inflation rate based on geographic region, as well as overall price parity as compared to the national average. 

Resources like this are valuable if you are considering a move in the future and want to incorporate inflation into your analysis.

I post lots of tools like this that show various aspects of money and finance from a location perspective.  Check out my Geoarbitrage Resources Page which has tons of great tools to help you find your perfect location no matter what your priorities are.

I hope you find these resources handy and I will continue to expose valuable tools that can help when deciding on a geoarbitrage strategy.